Osaka’s office vacancy rate rises to 3.4% in Q1

Only one new project was completed during the quarter.

According to a JLL report, one new project entered Osaka’s office market in 1Q23, namely, the Hommachi Garden City Terrace. The 19-storey building has a GFA of 19,000 sqm, with office space occupying the 2nd-18th floors, and an NLA of 10,000 sqm.

“The vacancy rate stood at 3.4% in 1Q23, increasing 30 bps q-o-q and decreasing 40 bps y-o-y. Despite the low occupancy of the newly-completed building, the vacancy rate rose only slightly as vacancies were taken up in many existing buildings,” the report said.

Here’s more from JLL:

According to the March Tankan survey for Greater Osaka, the sentiment of large manufacturers decreased by 9 points to 2 points, deteriorating for the first time in three quarters. The sentiment among large non-manufacturers decreased 1 point to 18 points, deteriorating for the first time in 11 quarters.

Net absorption totalled 5,000 sqm in 1Q23. While some large companies are downsizing or relocating to flexible spaces, more and more medium-sized companies with strong business performances are opening or expanding offices. Strong occupier demand was observed in manufacturing, finance and insurance, and medical, health care and welfare industries during the quarter.

Rent decline slows while cap rates remain flat

Gross rents averaged JPY 22,419 per tsubo, per month at end-1Q23, decreasing 0.2% q-o-q and 2.8% y-o-y. Although the vacancy rate turned upward for the first time in four quarters due to the impact of the new completion, the rent decline slowed.

Capital values decreased 0.6% q-o-q and 4.2% y-o-y in 1Q23. The pace of decrease has slowed, reflecting the slowdown in rent decline. Cap rates were flat. There were no transactions for Grade A office buildings during the quarter.

Outlook: Rents to continue a slight decline; cap rates to remain flat

According to the Oxford Economics forecast as of March, Osaka’s real GDP is forecast to grow by 0.5% in 2023. Downside risks include weak global demand and its impact on Japanese exports and manufacturing.

With limited new supply in 2023, a moderate rise in vacancy rates and a moderate decline in rents are expected. Although rents are expected to continue to fall, cap rates are expected to remain almost flat as some properties may see an increase in rent, and there are investors showing a positive investment stance.

Note: Osaka Office refers to Osaka's 2 Kus Grade A office market.